Tenaska wants to strike a deal that eliminates coal

In a closed-door meeting Tuesday in Springfield, it offered to power a proposed plant with natural gas instead of coal, which would reduce construction costs by two-thirds and could diffuse opposition to the plant

That proposal had been stalled in various forms at the Legislature since 2008 because of opposition from environmentalists concerned over pollution created by gasifying the coal. Also, consumers and businesses feared being saddled for decades with extra costs on their electric bills. Under the proposal, Illinois ratepayers would be forced to purchase electricity from the plant.

In a closed-door meeting Tuesday in Springfield, Tenaska offered to power the proposed plant with natural gas instead of coal, a move that would reduce construction costs by two-thirds to about $1.1 billion and could diffuse opposition to the plant. The meeting was led by Senate President John Cullerton and Rep. John Bradley (D-Marion), who sponsored legislation that would force electricity customers to purchase power from the plant for 30 years.

Under the new proposal, the rate increase to businesses would be capped at one-tenth of a cent per kilowatt-hour, which would mean an increase of about $43 per month for the average commercial customer, based on numbers in a 2010 analysis by the Illinois Commerce Commission. The average residential customer's bill would increase no more than three-quarters of a percent, or an average of 60 cents per month.

Tenaska didn't put its latest offer in writing, and it's unclear if opponents will accept it.

"We are pleased that Tenaska has recognized that their original proposal was too costly for Illinois ratepayers, didn't make sense environmentally, and had little support in the Assembly. When details of the proposal from today's private meeting emerge, we will look at it with the goal of ensuring rate payers aren't subject to unnecessary rate increases," the STOP Coalition, which has opposed the project, said in a statement.

The company told legislators it could take up the gasification part of the project at a later date, when the cost of turning coal into gas is more competitive with natural gas, which is at historic lows. That would require Tenaska to return to Springfield for approval. The company declined to comment for this story.

"I don't want to dismiss the proposal as not being substantiative, but it does not fundamentally take coal out of the equation. It delayed a decision on how to deal with all that pollution to a later date," said Jack Darin, director of Sierra Club's Illinois chapter. He was part of the large crowd that attended Tuesday's meeting.

The latest proposal poses a potential blow to the state's coal industry. Tenaska touted the plant as a jobs creator that would provide a new use for Illinois coal, which is high in sulfur and has had difficulty finding a market in the state.

Phillip Gonet, president of the Illinois Coal Association, said he doesn't see the latest proposal as a setback.

"There's still a hope that there's coal in the future," Gonet said. "Getting something under construction and up and running so that maybe in three years they consider building on the gasification component — that's better than where we are today."

Tenaska's project passed the state Senate in November but was struggling to gain the votes it needed in the House. With the session ending this month, time to strike a deal was running out, Gonet said.

"I don't think the votes were there in the House to pass the Senate bill as passed by the Senate. So do we get something out of this? Or do we get nothing?" he said.

News that the Taylorville plant could use natural gas instead of coal comes at a key juncture for the coal industry. Long the low-cost fuel that kept the lights on in America, power companies have been closing coal plants because of tightened environmental regulations that make it more expensive to keep the nation's dirtiest plants running. Midwest Generation's Fisk and Crawford coal plants in Chicago are slated to close by September, and this week Ameren Illinois threatened to close its coal plants if it doesn't receive an extension to clean them up.

With more coal plants closing, more expensive forms of power have taken up the load.

The more expensive mix of power means consumers can expect increases of $107 to $178 per year starting in 2014, according to calculations by the Citizens Utility Board.

Analysts at Goldman Sachs are expecting further increases going forward as low natural gas prices combined with environmental regulations make it more difficult for coal plants to compete.

Tenaska has argued that its natural gas plant could help mitigate those price spikes.

Chicago-based Exelon, which opposes the project, stands to lose millions of dollars a year if Tenaska comes online with power that is cheaper to produce than other forms of electricity that are replacing coal. Exelon declined to comment and referred questions to the STOP Coalition.